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MNI PREVIEW: Norges Bank Set To Show Policy Rate Flat-Lining
--Norges Bank To Leave Policy Rate At 1.5% At December Meeting
By David Robinson
LONDON (MNI) - Norges Bank is set to leave its policy rate at 1.5% at its
meeting Thursday and looks likely to publish a rate path projection which
implies that no further change in policy is likely over the next three years.
The most recent data have shown economic growth decelerating and firms have
scaled down hiring plans but the economy faces capacity constraints and the
Norges Bank board may sign off on a rate projection that suggests the most
likely outcome is three years of unchanged policy.
The following are key pointers for Thursday's policy decision and Monetary
--Norges Bank's latest collective rate projections, from September, on MNI
estimates imply a 40% chance of a 25-basis-point rate hike by the end of Q1 2020
and a hike is never more likely than not throughout the three-year forecast
The new collective rate path to be published is again likely to have no
policy change throughout the forecast period built into it and could be a little
flatter than the September one, with the data if anything coming in a little
softer than Norges Bank expected.
--The Norges Bank's quarterly Regional Network Report, published on Dec.
10, highlighted the slowdown in activity through the autumn, with surveyed
companies reporting output growth of an annualised 2.1% over the preceding three
months, versus 3.0% in the previous survey.
Expected output for the next six months on an annualised basis slowed to
1.9% from 2.7% in the previous quarterly report. The report also said that
employment growth had slowed since spring, decelerating across all private
This raises the question whether Norges Bank will cut its growth forecasts,
of 2.2% for 2020 and 1.9% for 2021, in the new Monetary Policy Report.
--The evidence of decelerating growth has, however, to be set against signs
of a lack of spare capacity and robust increases in earnings. According to
Norges Bank's assessment, the output gap turned positive at the end of 2018 and
is not expected to turn negative at any point throughout the three year forecast
With skill shortages to the fore, respondents to the Regional Network
Report anticipating annual wage growth in 2020 edging up to 3.2% from 3.1% this
year, although the 2019 figure was softer than Norges Bank's 3.3% forecast in
its most recent Monetary Policy Report.
--While activity has appeared softer than expected, the continuing weakness
of the krone suggests that inflation could be higher. Norges Bank forecast
consumer prices on the CPI-ATE measure holding above the 2.0% target from the
second quarter of 2020 until the end of 2022, albeit in a tight 2.01% to 2.24%
The inflation overshoot, and the risk it could come in higher, supports the
view that the central bank will not wish to include any significant chance of
easing in its collective rate path.
--Norges Bank's inflation expectations survey also provided a reason for
the central bank to be wary of signalling any easing ahead.
Business leaders expected goods and services inflation to be 2.5% 12 months
ahead and 2.9% 24 months down the line, with most expecting purchase prices to
rise at least as fast in the next 12 months as they had during the previous 12
months and with almost three in four households anticipating that inflation
would accelerate in the next 12 months.
--MNI London Bureau; tel: +44 203-586-2223; email: email@example.com
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